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Global forecasting firm Oxford Economics has said retail inflation spike in May might cause the RBI to revisit its focus on growth risks, adding that a rate hike is still unlikely this year. It stated that the underlying dynamics of the May inflation print augur caution and the recovery remains on uncertain ground and with fiscal support in retreat, the RBI will likely be hesitant to remove policy accommodation anytime soon.

It said that given the evidence from last year, when supply side disruptions had led to an unanticipated spike in inflation, such developments may partly be attributed for the inflation pick-up in May. However, it said ‘as we have highlighted, the 2021 lockdowns are not as stringent; and have allowed for greater movement of people, goods and vehicles. This suggests that other factors, such as the passthrough from WPI (Wholesale Price Index) to CPI (Consumer Price Index) and demand-side pressures, are at play as well.’

It mentioned the April industrial production growth print surprised to the upside. It said positive base effects notwithstanding, industrial production grew 1.1 per cent month-on-month seasonally adjusted in April after rising 2.2 per cent in March. This was led by continued expansion of manufacturing output.